Three witches rode into Wall Street on Friday, propelled by an
evil wind out of the North. Not only was it triple witching
Friday (the expiration of futures, options on stocks and options
on indexes), but we also received word out of Toronto that Nortel
Networks (NYSE:NT) will suffer a whooper of a second quarter
loss.

Nortel warned that it is facing a $19.2 billion loss for its
second quarter and outlined an additional 10,000 reduction of its
workforce. This comes on top of its previous announcement of
20,000 in layoffs. The networking giant also reiterated that it
doesn't see a turnaround until at least 2002. The bottom line is
that NT now expects to report a loss of $1.5 billion, or $0.48
per share versus a loss of $0.06 per share expected by First
Call. Needless to say, the stock finished lower. NT lost $0.70,
or 6.98%, to $9.86.

While the Nortel news served to put a drag on the already
frazzled networking sector, traders in other corners of the
market were treated to an unusual amount of volume that actually
worked to prop up the market. The heavy volume in the morning
was the result of traders unwinding options positions. After an
initial dip, it appeared as if most of these trades were biased
to the upside. Many pros commented that were it not for triple
witching, the losses on the major indices would have been more
pronounced.

Also acting like a two-ton anchor on the broader market was a
gaggle of economic reports that again illustrated that we still
have a ways to go down the road to economic recovery. Capacity
utilization, the extent to which plants are being used, fell to
77.4%, the lowest level since August of 1993. Industrial
production also dipped by 0.8% and the CPI rose 0.4% in May and
just 0.1% at the core. While inflation is certainly not in the
picture at this time, it is worrisome that companies are not able
to pass on cost increases to the consumer.

Friday's Markets

Once again, the question on everyone's mind is when an economic
about-face might occur. The more warnings and economic data that
start piling up in the "recovery by 2003" basket as opposed to
the 2002 or late 2001 basket, the more buyers are stepping back
and wondering if it's worth the opportunity cost to be in the
market if the recovery is going to take longer than expected.

After an initial free fall, the NASDAQ (COMPX) found some
traction and edged higher into the close. Surprisingly (given
some high- visibility earnings warnings) the tech heavy index
lost just 15.64 to 2028.43. Volume was a respectable 2.1 billion
shares and decliners beat up advancers 2136 to 1626.

Over in the Dow (INDU), we saw a similar picture unfold. Early
morning weakness was replaced by buying interest by midday. The
old economy average ended the session down 66.49 to 10,623.64.
Volume came in at 1.5 billion shares on the NYSE. On the
disturbing side, new lows versus new highs came in almost even,
with 80 new highs and 62 new lows. Prior to this week new highs
had been consistently beating new lows by a wide margin.

Of all the major indices, only the Russell 2000 (RUT.X) remains
above major support levels. The Russell has been tracing a
double top, but has yet to close below its neckline at 493.
However, the RUT.X finished Friday's session dangerously close to
neckline support at 495.13, down 0.25.

Stocks and Sectors on the Move

Besides the Nortel bomb, there were a few other mea culpas and
one legal ruling that grabbed some headlines on Friday. Chief
among these was McDonalds Corp. (NYSE:MCD), which warned for the
third quarter in a row that it would not meet consensus
estimates. The "not so golden" arches said it will miss
estimates by as much as $0.04 per share in posting earnings of
between $0.34-$0.35 per share for its second quarter. Currency
exchange rates and mad cow were blamed for the shortfall. So
much for defensive issues! MCD closed down $1.29 to $28.67.

Another stock which could be considered a defensive play, Proctor
and Gamble (NYSE:PG), declared Friday that it will be taking a
larger than expected charge for its recent corporate
restructuring. The charge will result in a fourth quarter loss
for the consumer staples giant. On the news, PG lost $2.26 to
$62.60.

On the legal front, a Delaware judge ordered that Tyson Foods
(NYSE:TSN) is to go ahead with its merger with IBP (NYSE:IBP)
(the giant hog processor). In an unusual ruling, the judge
upheld a lawsuit filed by IBP, which sought to make Tyson go
through with the merger. Tyson had bailed out earlier, citing
IBP's failure to disclose accounting irregularities as the reason
behind their walking away from the deal. I can't imagine that
anything good will come out of the ruling. If management cannot
mesh, any synergies realized from the merger will become a mute
point if the companies cannot unite towards on goal.

Turning to sector action, it was not surprising that during a
week of warnings and market weakness that the defensive sectors
held up the best.

Within the defensive sectors, healthcare and consumer staples
(minus the above mentioned PG debacle) were the clear standouts.
A couple of healthcare stocks that have grabbed my attention
lately are Splittrader favorite Tenet Healthcare (NYSE:THC) and
Healthsouth (NYSE:HRC). THC emerged from a symmetrical triangle
formation back on 5/31 and has not looked back. HRC just broke
out of a double bottom formation on Friday and is less extended
than THC at this point. THC closed up $1.14 to $51.09 and HRC
closed higher by $0.64 to $14.40.

Checking into the consumer staples stocks, Kellogg (NYSE:K) has
been on a tear. The stock just broke out of a huge symmetrical
triangle formation that was started back in last December. The
bullish breakout in Kellogg was accompanied by volume of 2.5
million shares; four times its average trade.

In addition to Kellogg, Unilever (NYSE:UN) just completed a
bullish breakout. The stock busted up through its downtrend line
on volume of 1.5 million shares. UN typically trades 600,000
shares. When large institutions decide to start accumulating
shares of a stock, it's like trying to hide Shaquille O'Neal at
jockey's convention.

Looking Forward, Always Forward

We have another light week coming up as far as economic data goes
and let's hope the same is true for earnings warnings. If we can
trade sideways on light volume next week, traders will be pleased
as punch. Now that we have broken support on the major averages,
I am thinking damage control.

That being said there is no reason to make like an ostrich just
yet. As mentioned above, there are plenty of stocks within the
strong sectors that are just now sharpening their horns and
acting bullish. Splittrader's Current Play list is starting to
fill up with more defensive names, so if you haven't had a chance
to glance at them, you might want to take a peak.

So the trading mode hasn't changed much from last weekend. Keep
the stops tight and go for small gains. Heck, you can always get
back into a stock that you have just sold for a profit.

Enjoy Your Weekend

Here's to all you fathers out there, mine included. Have a great
Father's Day, and may your jug of Old Spice come with the receipt
and a tee time.